Bahri and Vela Contemplate $1.3 Billion VLCC Merger

Saudi Aramco and the National Shipping Company of Saudi Arabia (Bahri) announced Wednesday that they have signed a non-binding memorandum of understanding (MOU) that would pursue a merger of the fleets and operations of Bahri and Vela International Marine Limited, a wholly owned subsidiary of Saudi Aramco, to create large and diversified national shipping company.

The deal would see ships, personnel and business systems from Vela and Bahri, along with management responsibility for Saudi Aramco’s very large crude carrier (VLCC) transportation system, implemented within the corporate structure of Bahri.

Following the transaction, Bahri’s fleet would expand to 77 vessels — made up of 32 VLCCs, 20 chemical tankers, 5 product tankers, 4 roll-on roll-offs (ROROs) and 16 vessels under-construction — thus making company the fourth-largest owner of VLCCs globally and creating a platform for continued economic growth and human capital development for Saudi Arabia.

If finalized, Bahri would be the exclusive provider of VLCC crude oil shipping services to Saudi Aramco under a long-term agreement and take responsibility for maintaining the fleet and providing reliable crude transportation at all times. The two companies also plan to explore ways to expand their cooperation in the maritime sector.

“By creating a new global leader in shipping, Saudi Aramco hopes to build a strong company that can leverage its capabilities in the shipping sector and would meet its growing business portfolio. This company in turn will serve as a national champion that will promote the development of a thriving national maritime industry that creates jobs and other long-term opportunities for the Kingdom,” Saudi Aramco President and CEO Khalid Al-Falih said of the proposed transaction.

Under the terms of the proposed transaction, Bahri would pay Vela a total consideration of approximately US$1.3 billion (equivalent to SAR 4,875,000,000). The consideration will be comprised of a cash payment of US$832.75 million (equivalent to SAR 3,122,812,500) in addition to 78,750,000 new Bahri shares to be issued to Vela at an agreed price of SAR22.25 per share, representing a 20 percent shareholding in Bahri after the proposed share issuance on a fully diluted basis. Bahri is currently considering raising the cash consideration through debt financing from a number of sources.

“We strongly believe that the proposed transaction presents Bahri with a unique opportunity to further diversify its business model and reinforces our ability to satisfy Saudi Aramco’s transportation needs as well as continuing to serve other customers,” Bahri CEO Mr. Saleh Al-Jasser said.

While the proposed transaction is subject to a number conditions, including approval from Bahri’s shareholders, both Bahri and Vela say they intend to work toward signing the definitive transaction agreement in the fourth quarter of 2012 for completion in 2013.

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